Payment of Capital Gains Tax and Documentary Stamp Tax Made upon the Registration of the Affidavit of Consolidation of Ownership of the Property Foreclosed

December 2, 1987 BIR RULING NO. 389-87 21 (e) 000-00 389-87 Gentlemen : This refers to your letter dated October 8, 1987 requesting that the payment of the capital gains tax and the documentary stamp tax be made upon the registration of the Affidavit of Consolidation of Ownership of the property foreclosed. In reply, please be informed that a mortgage foreclosure sale is a form of conditional sale transaction (Revenue Memorandum Circular No. 41-86), and as such subject to redemption within a period of one year reckoned from the date of registration of the sale. Under Section 21(e) of the Tax Code, as amended by Executive Order No. 37, capital gains presumed to have been realized from the sale, exchange or other disposition of real property located in the Philippines classified as capital assets, including pacto de retro sales and other forms of conditional sales , by individuals, including estates and trusts, shall be taxed at the rate of 5% based on the gross selling price or the fair market value prevailing at the time of sale, whichever is higher. Accordingly, the 5% capital gains tax and the corresponding documentary stamp tax become due after the mortgage foreclosure sale but before the registration of the Certificate of Sale issued by the auctioneer conducting the foreclosure sale. (B.I.R. Ruling No. 138-87) Moreover, on the premise that the amount representing the capital gains tax forms part or is tacked with the real property which is already under the control and custody of the financial institution like you, you as the mortgagee-transferee shall pay the 5% capital gains tax based on the selling price shown in the mortgage foreclosure sale and the corresponding documentary stamp tax based on the selling price shown in the mortgage foreclosure sale or fair market value of the real property, whichever is the higher amount. (Revenue Memorandum Order No. 29-86) Furthermore, the return from the sale or disposition of real property under Section 21(e) of the Tax Code, as amended, shall be filed within 30 days following each sale or other disposition. [Section 45(c)(2)(ii), Tax Code, as amended by Executive Order No. 37] In other words, since the aforesaid taxes are due and payable after the foreclosure sale but before the registration of the Sheriff's Certificate of Sale, your request that the same be paid upon execution and registration of the Affidavit of Consolidation of Ownership after the expiration of the one-year period of redemption, cannot be granted by this Office. atdc Very truly yours, (SGD.) BIENVENIDO A. TAN, JR. Commissioner